Eager to sell your home quickly and possibly make a greater profit in Texas?
When a homeowner lends money to the buyer, allowing him or her to make payments, the transaction is referred to as “owner financing”. It can help you sell your home faster, sell it “as is”, and possibly get a better interest rate than on some other investments.
HOW DOES IT WORK?The seller and buyer sign a promissory note that includes the interest rate, repayment schedule, consequences of default, and all other details, such as a balloon payment.
POTENTIAL BENEFITS TO THE OWNER1. Property may sell more quickly, reducing sales costs.
2. Increases the chances of getting the full asking price.
3. May be able to sell "as is", another way to increase net profit.
4. Property will stand out in listings because the offer is attractive.
5. Owner gets the property back and retains all monies received if the buyer stops making payments.
6,. May provide you a better interest rate than some other investments.
IMPORTANT CONSIDERATIONS FOR OWNER1. This strategy will only work if the owner does not require the full amount of the sale in order to purchase his/her next home.
2. If you do not own the home outright, a sale can still happen under certain circumstances.
3. There is a risk that the buyer will stop making the payments, which requires you to foreclose.
4. If the buyers do not fulfill the terms and the house reverts back to you, there is a risk that the property will require repairs.
POTENTIAL BENEFITS TO THE BUYER1. Down payment is more flexible.
2. Closing costs are lower and the process is faster.
3. Prospective buyer who does not qualify for a mortgage may be able to purchase a home.
4. Investors can acquire property with lower initial investment.
IMPORTANT CONSIDERATIONS FOR PROSPECTIVE BUYER1. Buyer must prove worthiness to borrow.
2. Interest rates are likely to be higher.
ESSENTIAL FOR BOTH SELLER AND BUYER1. It is imperative for both parties that a real estate lawyer be engaged to draw up the contract and the promissory note.
2. Sellers may want to speak with a CPA regarding tax benefits of selling the home using the owner financing strategy.
3. Sellers may want to run a credit check on all prospective buyers.
4. We strongly suggest sellers require and check references on all prospective buyers.
5. When determining the down payment amount, sellers should consider an amount that will help ensure that the buyer feels vested and reduces the risk of him/her not fulfilling the agreement.
(C) Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.
Gaylene Rogers Lonergan
Lonergan Law Firm, PLLC
"A Community Resource for Real Estate Professionals and Investors"
12801 North Central Expressway, Suite 150 | Dallas, Texas 75243 |
(214) 503-7509 | (214) 503-8752 fax |
[email protected] | www.lonerganlaw.com